DELOITTE has completed its review of Tesco’s overstated half-yearly results and confirmed that its black hole is even bigger than the £250m previously declared and goes back even further than the supermarket group had originally stated.
The Big Four firm’s probe has established that Tesco’s overall commercial income adjustment in the current reporting period was £263m and that the amounts pulled forward or deferred was not only against Tesco’s accounting policies, but had been repeatedly replicated in prior reporting periods.
It also stated that both the current and prior practices appear to be linked as income was pulled forward grew period by period.
Some £70m of the overstatement relates to 2013/14, while £75m is pre-2013/14. The balance, £118m, relates to the first half of 2014/15.
Shares in Tesco fell by 6% in early trading after it published its results this morning’s trading.
PwC, which has audited Tesco since 1983, said it could not comment due to client confidentiality and the fact that the FCA was conducting its own probe into the affair.
Tesco chairman Sir Richard Broadbent has announced plans to step down, following mounting pressure. But he will only exit the grocer‘s boardroom once the chief executive Dave Lewis outlines his new strategy for the company, widely tipped to be in 2015 and probably in April.
While this marks the end of Deloitte’s investigation its merely marks the start for other bodies – with the FCA already kick-starting its own full investigation and the FRC still poised in the wings. Further investigations will focus on how the income adjustments took place over a period of time.
A spokesman for the accountancy and audit watchdog, said: “The FRC is giving careful consideration to Tesco’s announcement this morning and will continue to monitor the events at Tesco closely to determine whether it should take regulatory action.
Tesco said it “will continue to cooperate fully with the FCA and any other regulatory authorities”.
The debacle now means that Tesco has seen a fifth of its market value wiped out this month alone. It has already suspended eight executives – who will remain in limbo while the FCA conducts its wide-ranging probe into the black hole.
Both Lewis and Blackstone are now looking at all the options as to what possible assets they can divest themselves of to help the grocer in its long climb back to fiscal sanity.
Tania Hayes, head of conduct and compliance at the AAT, said:”The public relies on accountants acting in the public interest to preserve confidence in the markets. All accountants are therefore required to comply with a code of ethics that demand they do their work with integrity, competence and due care.
“The outcomes emerging from Tesco point towards failures to meet these and other fundamental obligations. This would be worrying for any company and are even more so for one that is in the FTSE 100. Any abuse of information or position that has led to unethical behaviour requires a proportionate, but robust approach to ensure that the profession can maintain public confidence.”